While catastrophe modelers are still revising their insured-loss estimates for Superstorm Sandy, one thing looks certain: It will rank among the costliest U.S. hurricanes ever.
Catastrophe-modeler Eqecat says Sandy will prove to be one of the five-costliest U.S. hurricanes to date, putting insured losses between $10 billion and $20 billion. That figure would make it the third-costliest U.S. storm in history for insurers—behind only 2005's Katrina ($46.6 billion) and 1992's Andrew ($22.9 billion).
Any actual insured loss within Eqecat's new range would make Sandy one of the Top 20 global natural catastrophes since 1970.
Total economic damage from Sandy will be in the range of $30 billion to $50 billion, Eqecat says.
The latest estimate doubles Eqecat's pre-landfall insured-loss estimate from Sandy of between $5 billion and $10 billion, with total economic losses of $10 billion to $20 billion.
The firm says power outages are expected to "trigger significantly more insured [business interruption] losses than were expected from a more typical Category 1 storm," and the shut-down of the subway and tunnels in New York City will lead to higher expectations of loss amplification.
Catastrophe-modeling firm AIR Worldwide, meanwhile, says Sandy will cause between $7 billion and $15 billion in insured losses.
The estimate includes wind and storm-surge damage to residential, commercial and industrial properties and contents, as well as automobiles. The estimate also includes additional living expenses and business interruption and takes into account demand surge.
Risk Management Solutions (RMS) says too many important variables remain unknown for the cat modeler to be able to come up with a reliable estimate of insured losses from Sandy.
"Issues continue to tickle the meter in terms of insured losses; this is an ongoing event," Michael Kistler, director of Model Solutions at RMS, tells NU. "Our goal is to produce a stable, usable number for the industry to use."
RMS' Hoboken, N.J. office experienced the storm's devastating effects firsthand. Most of the small city across the Hudson River from New York City was badly flooded, stranding residents and paralyzing businesses. It was nearly a week before power was restored to the area, and train service from Hoboken to New York—counted on by thousands—remained out of service for more than a week.
It's just one example, Kistler says, of the continued effects of Sandy that make it difficult to release an insured-loss estimate, because with every minute of power loss and flooding, insured losses increase. Multiply these effects in various areas, such as New York City and Southern New Jersey, that have been hit hard by the storm and continue to deal with the ripples left behind.
In fact, Sandy caused the most power outages of any hurricane in history—affecting 15 states at its peak, RMS reports.
"Power-reconnection rates have been shown during previous hurricanes to be an important driver of losses," says Claire Souch, vice president of model solutions at RMS. "For example, after Hurricane Ike in 2008, more than two million residents were left without power in Texas, with power outages lasting more than 10 days along the coast and in the Houston suburbs, with reconnection times rivaling that of Katrina and significantly longer than all other hurricanes in the past decade. Infrastructure damage over a wide geographical area can take time to repair, depending on how quickly and how many repair teams can be mobilized."
The speed at which power is restored and the pumping of floodwaters from basements and subways, for example, "remain major unknowns," Souch says. Extensive standing water has been shown in previous events to lead to a phenomenon known as "vulnerability deterioration," as the water seeps further into building's structures, she adds.
The woman who created the catastrophe-modeling industry estimates that insured wind losses alone caused by Sandy will be $12 billion.
Karen Clark, who in 2007 founded Karen Clark & Co. after starting what is now AIR Worldwide in the mid-1980s, says New York State was hit by the strongest sustained winds from the storm. Wind gusts peaked at between 70 mph and 80 mph in places like JFK Airport and Long Island, N.Y.
According to Karen Clark & Co.'s RiskInsight product, which allows insurers and reinsurers to estimate company-specific losses, there were no recorded sustained hurricane-force winds in New Jersey—but because winds are not measured in all areas, it's possible that the Jersey coast did experience winds of this strength.
A large majority of claims can be expected from the Empire State and New Jersey, according to RiskInsight. Residential insurers can expect more than 650,000 claims for wind damage. Commercial insurers can expect in excess of 100,000 claims. (Auto claims are not included in the analysis of insured wind losses.)
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